Sunday, 6 October 2013

Sir, I was glad to see Merryn Somerset Webb’s article “The perfect tax” (House & Home, September 28), but I would like to respond to one point.

Ms Webb refers to an out-of-control property bubble in the US from which, as far as she can see, Pennsylvania was never immune. It should be noted that only 20 or so towns in Pennsylvania have (partial) location value taxation, so a property bubble that included, at least, other parts of Pennsylvania does not refute the idea that an LVT can suppress the boom and bust cycle in real estate.

Also, the boom and bust cycle was notably severe in California and Florida, which have low property taxes, and mild in Texas, which has no income tax and relies to a larger extent on the property tax.

The IRS isn't the only one who wants a piece of your paycheck - 41 states have a broad-based individual income tax. Only seven states lack an income tax altogether. They are:

Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

Two states have a limited income tax on individuals. These states tax only dividend and interest income:

Tennessee
New Hampshire

Will I Pay Less Taxes Overall in These States?

Not necessarily. States need revenue to function, and these states will have to make up for the lack of income tax somehow. New Hampshire and Texas, for example, make up for it in property taxes. Both states have some of the highest property taxes in the nation. The cost of higher property taxes, sales taxes, fuel taxes, and other taxes could amount to higher overall taxes in some of these states.

To rank the state’s tax burdens, the Tax Foundation compared the total taxes that state residents pay as a percentage of per capita income. Included in the total taxes are local taxes such as property taxes and local sales taxes. The states whose residents pay the least in taxes are:

Alaska at 6.4% of income
Nevada at 6.6% of income
Wyoming at 7% of income
Florida at 7.4% of income
New Hampshire at 7.6% of income

It’s interesting to note that none of these states have an individual income tax.

9
comments:

these examples are interesting buyt strange in taht they include densely-populated states along with desert states. But it is still interesting that land tax seems to fit the bill for these widely different states.

If you can get the data, it should be interesting to compare Washington and california - which both levy sales taxes - with Oregon, which has no sales tax.

Graeme: interesting article here Net migration to Oregon. But it´s not a clear cut case of the absence of sales taxes. Oregon has slightly lower property taxes, and as high income taxes as California. And California has been mismanaged to the extreme, so it´s an unfair comparison. New Hampshire is interesting in having both no income or sales taxes (broad based anyway), and has quite high GDP despite not having very big cities or particular resources. But all states have the federal payroll/corporate taxes, that can get quite high. It´s be interesting to see a list that combines all the aggregated levels of taxation, but it´d be very complex with up to four levels of taxation.

one day, commentators will stop treating the USA as one country and drawing conclusions therefrom. I guess oregon is prospering relatively compared with Washington and California because of the lack of sales tax. It might even help Mark's argument against sales taxes.

Kj, I think it is a relatively useless comparison, there are only three mainland Pacific states so Oregon is only competing against two which are (according to that article) even worse.

G, good point, the USA has quite different tax rates from state to state and from county to county within a state, plus loads of statistics on employment, wages, construction and house prices, which we can mine to find out all sorts of interesting correlations.

As to evidence against Sales Taxes, we don't have to look very far for that.

Derek: Thanks for the clarification. Some significant differences there that should reflect in relative economic figures. I guess Alberta, which seems to have a relatively low provincial income tax rate as well, is the odd man out because of oil revenues, right?

I think that's true. At the moment Newfoundland and Alberta both do well out of oil revenue. However for historical (and purely accidental) reasons, Alberta is much more "Georgist".

As it happens a right-wing Social Credit provincial government was in power from the 1930s until the 1970s, followed by a left-wing Conservative one from the 1970s until today. But the SocCred administration's policies owed much more to Silvio Gesell than to C H Douglas, so the result has been a mainly resource-based tax policy and an extremely occasional and irregular Citizen's Dividend (although it's never called that).

I think that those policies are a major reason that Albertans are generally prosperous and why so many other Canadians "commute" here from their home provinces to work but as usual people don't really know why they are doing so well and so there is an ever-present risk that they are going to cock it all up.

The voters vaguely know that "it's the oil money" and oppose sales taxes on the basis that "new taxes are bad" but there's no love for property taxes here and resource taxes are way below the levels they should be.